Cross Country Healthcare (CCRN) Q4 2019 Earnings Call Transcript

Cross Country Healthcare (CCRN -1.54%)
Q4 2019 Earnings Call
Mar 04, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good evening ladies and gentlemen. And welcome to the Cross Country healthcare earnings conference call for the fourth quarter and full year of 2019. This call is being simultaneously webcast live. A replay of this call will also be available until March 19, 2020, and can be accessed either on the company's website or by dialing 800-294-4406 for domestic calls and 203-369-3231 for international calls and by entering the passcode 2020.

This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Bill Burns, Cross Country healthcare's chief financial officer. Please go ahead, sir.

Bill Burns -- Chief Financial Officer

Thank you. And good afternoon everyone. I'm joined today by our president and chief executive officer, Kevin Clark; as well as Buffy White, president of workforce solutions and services; and Steve Saville, executive vice president of operations. Today's call will include a discussion of our financial results for the fourth-quarter and full-year results for 2019, as well as our outlook for the first quarter of 2020.

A copy of the press release is available at www.crosscountryhealthcare.com. Before we begin, we need to remind everyone that certain statements made on this call may constitute forward-looking statements. As noted in our press release, forward-looking statements can vary materially from actual results and are subject to known and unknown risks, uncertainties and other factors including those contained in the company's 2018 annual report on Form 10-K and other quarterly filings on Form 10-Q, as well as other filings with the SEC. The company undertakes no obligation to update any of its forward-looking statements.

Also, comments made during this teleconference reference non-GAAP financial measures, such as adjusted EBITDA or adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered as a substitute for or superior to measures calculated in accordance with U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release.

With that, I'll now turn the call over to our president and chief executive officer, Kevin Clark.

Kevin Clark -- President and Chief Executive Officer

Thank you Bill. And thank you to everyone for joining us this afternoon. This call marks my first full year since having returned to Cross Country, and I am incredibly proud of the progress we have made. 2019 was clearly a successful turnaround year for the company as we gain momentum throughout the year.

We met or exceeded guidance for all four quarters. And thanks to the strong performance, especially in the fourth quarter, we reported modest full-year organic revenue growth on a consolidated basis. None of this would be possible without our more than 1,700 employees who have fostered a culture of change and embraced our core values. I am grateful to our outstanding team.

Let me just touch on some of our accomplishments. For me, it all starts with our people. Not only have we hired and aligned the right leadership across the organization, but we have continued to attract top talent from across our industry. The reason we have been successful in this regard is simple, it's the culture we are building at Cross Country that inspires people to want to join our team.

We give our team the tools and training they need to be successful and we celebrate their success. Another significant accomplishment has been the consolidation in total refresh to our brand. By consolidating from more than 20 disparate brands down to one core brand, Cross Country healthcare, we have strengthened our go-to-market approach and are better positioned to deliver the full depth and breadth of our services to clients and professionals alike. Let me just add that the change has been well received both internally and externally.

Throughout the year, it was necessary to make some difficult decisions to reduce costs in order to fund much needed investment in our revenue-generating capacity. Overall, we cut nearly $15 million, the majority of which we invested back into the business, boosting our revenue-producing capacity and other support. I'm thrilled at how quickly we are seeing the return on that investment. From a liquidity perspective, we refinanced into a more flexible, cost-effective $120 million credit facility that scales with our business.

And from a technology perspective, we successfully implemented the first phase of our new applicant tracking software system to a division within our travel nurse business. As we've previously shared, we expect that when fully implemented, these investments will result in improved employee productivity and shorten the ramp-up time for new hires. This new phase of our implementation went very well with minimal disruption to the business. And with the software now live, we expect to gain valuable insights that will inform our efforts to deploy the platform across the rest of the travel nurse business in mid-2020.

I am confident we have selected the right technology partner to provide a scalable platform as one component of our larger technology ecosystem that we expect will drive continued growth across our business. Of course, our efforts don't stop there. We are truly reimagining delivery in the digital age. There are so many exciting technology initiatives under way here at Cross Country, and I am very pleased to announce the very first of those efforts.

Later this month, we will be launching Cross Country marketplace, an on-demand staffing platform for our per diem division. Marketplace is the first proprietary intellectual property the company has created and introduced to the market in many years. We are piloting this new application in several of our largest local markets connecting our local healthcare professionals and hospitals. One of the goals I stated when I returned to Cross Country is that we needed to simplify and improve the candidate experience and make it easier and more intuitive for our healthcare professionals, who are mostly millennials, to connect with their ideal job.

We look forward to sharing more about this new offering and other innovations as we progress through 2020. After a year of driving successful change, it's important to celebrate these and many other accomplishments including the five recent best of staffing awards we received from ClearlyRated for both clients and candidates. I think it is a testament to the strength of our brand, our market position and the outstanding service we deliver every single day. Next, let me spend just a moment discussing the trends we are seeing.

Demand for our services continued to rise throughout the fourth quarter, especially in our travel nurse business, where orders were up 17% sequentially, and up more than 50% over the prior year. Orders related to our managed service program clients or MSPs, account for a portion of the increase. But we continue to see strength in the broader market. Another good indication that the market remains strong was growth in spend under management from our MSPs which was up 18% over the prior year and 2% sequentially.

As new accounts continue to ramp, we saw our capture rate at MSPs also increased to 61%. The increase in the capture rate was due in part to the investments we made throughout the year in revenue producers and equated to about $5 million in revenue during the quarter. We continue to believe that improving our capture rate remains an opportunity to continue to grow faster than the market. And lastly, our physician staffing business also reported stronger-than-expected performance, as days filled were up 8% compared to our expectations.

While the market remains strong and we are seeing traction from our investments in 2019, we understand that we must continue to execute. And we build upon the early success from this turnaround. This team will continue to work hard and evolve our strategy to become the leading total talent management provider. And before I turn the call over to Bill to walk us through the numbers in more detail, I would like to make a few comments regarding the coronavirus.

As widely reported, this is a very serious illness with a growing number of people in the United States being infected. Our concern is, and always will be, the safety and protection of our employees, healthcare professionals, their families and the patients we serve. With that in mind, we have been closely monitoring all reports and guidelines from the CDC, and we have open lines of communication with our employees including establishing a hotline for their inquiries. Additionally, we have established protocols for employees returning from outside of the United States, and we are carefully reviewing all nonessential corporate travel.

We have also had many conversations with clients regarding both our business continuity plans as well as potential staffing challenges. Similar to other spikes in flu season or labor disruptions, we could see an increase in demand for healthcare professionals. But at present, there has been little to no impact on our business. At this point, we are uncertain how our supply of healthcare professionals may be affected as we continue to navigate through this uncertain and unfortunate circumstance.

Regarding our first-quarter guidance, while the normal seasonal trend is for revenue to decline sequentially in both nurse and allied as well as physician staffing, we are expecting continued year-over-year mid-single-digit consolidated revenue growth. I am optimistic about the prospect for continued growth in all our lines of business, and expect to continue to drive improved profitability throughout 2020. We began the year with one brand, one vision as one Cross Country. And with that, let me hand the call back over to Bill.

Bill Burns -- Chief Financial Officer

Thanks Kevin. As Kevin mentioned, we exited 2019 on a very positive trend, having exceeded our guidance for both revenues and adjusted EBITDA. Turning to the quarter. Consolidated revenue was $215.1 million, up 7% over the prior year and $0.03 sequentially driven primarily by strong performance in our large segment, nurse and allied.

An additional driver of the year-over-year performance was the double-digit revenue growth experienced by our physician staffing business. Revenue for nurse and allied was $191.4 million, up 7% from the prior year and up 3% sequentially. Consistent with the prior quarter, the primary driver for the year-over-year growth was an increase in the number of FTEs on assignment. Additionally, we experienced a 2% increase in the average bill rate driven by favorable pricing and mix.

Though our clients continue to be very focused on their contingent labor spend, we are seeing modest increases in certain geographies and for certain specialties. Considering the robust demand and tight labor supply, pricing remains a big focus for us as we enter 2020. As I mentioned a moment ago, our physician staffing segment had a strong quarter, far exceeding our expectations. Revenue for the segment was $20 million, representing a 10% increase over the prior year and a modest 2% sequential decline due mostly to seasonality.

The year-over-year growth was due to double-digit growth in Advanced Practice specialties and mid single-digit growth for physicians. Gross profit margin for the quarter was 24.7%, representing a 50-basis-point decline from the prior year and a 30-basis-point improvement sequentially. The year-over-year decline was primarily driven by a lower bill pay spread within nurse and allied as average pay rates rose by 3% compared to the bill rate increase of 2%. The sequential improvement was due partially to a favorable mix as our education business which operates at higher margins, grew following their summer break.

Also contributing to the sequential increase was a favorable experience in workers' compensation and professional liability. Total SG&A was $45.6 million for the quarter, up 1% over the prior year and 3% sequentially. The sequential increase was primarily due to higher employee-related expenses, as well as professional fees. Throughout the year, we continue to pursue cost reductions in order to fund investments that could drive organic revenue growth.

And as planned, the net result has realized savings of approximately $2 million in 2019. As we look into 2020, we expect to continue identifying additional cost-saving opportunities for further centralization and automation as well as potential benefits from the full deployment of our new applicant tracking system across the rest of the travel business. Adjusted EBITDA for the quarter was $8.3 million, above the high end of our guidance range driven largely by the overachievement on revenue mentioned earlier. Below adjusted EBITDA, there are a few items to call out.

We continue to recognize restructuring costs primarily associated with severance expenses. In addition, we recognized $1.5 million pertaining to the refinance of our credit facility earlier in the quarter. And finally, depreciation and amortization was $2 million higher, stemming from our rebranding efforts. From a balance sheet perspective, we ended the quarter with $1 million in cash which was down versus the prior year and prior quarter since we have moved to an asset-based revolving credit facility which can be redrawn.

Cash from operations was negative during the quarter, principally due to the investment in working capital on the sequential growth in the business as well as the timing of the release for payments at year-end. Our day sales outstanding remains unchanged from the prior quarter at 58 days. For the full year, we generated cash from operations of $5.5 million which was lower than the prior year. The drivers included approximately $4.5 million for significant expenditures throughout the year that related to items such as the termination of our hedge, legal settlements previously reported, higher restructuring costs as well as operating expenses pertaining to the new applicant tracking system.

In addition, the timing for the year-end resulted in prefunding estimated $4 million toward 2020 payroll. Finally, while DSO improved for the year, the sequential revenue growth resulted in net working capital investment of approximately $3 million. From a debt perspective, we closed the quarter with $71 million in principal outstanding and $19.9 million in undrawn letters of credit. This brings me to our 2020 first-quarter guidance.

Our outlook is for revenue to be between $207 million and $212 million reflecting a year-over-year consolidated growth rate of between 6% and 9%. Included in this guidance is for nurse and allied to report mid single-digit revenue growth and for physician staffing to report low double-digit growth. Sequentially, the range assumes the normal seasonal decline in nurse and allied for FTEs on assignment following the holiday season as well as the normal seasonal decline in physician staffing. Also for the first quarter, we are seeing increased demand for certain specialties as a result of a worsening flu season.

We estimate the impact on the first quarter to between $1 million and $2 million. On a related note, we continue to monitor the coronavirus situation with our clients and professionals, and at this time, we are not expecting any impact for the first quarter. From a profitability perspective, gross margin is expected to be between 23 and 23 and a half percent, which is down sequentially primarily due to the impact from the annual payroll tax reset in our nurse and allied business. Adjusted EBITDA is projected to be between $4.5 million and $5.5 million which represents a 25% to 52% increase over the prior year.

And adjusted earnings per share is projected to be a loss of $0.03 to $0.00. Also implied in this guidance is $3 million of depreciation and amortization expense excluding approximately $750,000 of accelerated amortization due to the rebranding, $1 million of interest expense, $1 million of stock compensation expense, $200,000 for income taxes and a diluted share count of 36.4 million shares. This concludes our prepared remarks. And at this point, I'd like to open up the line for questions.

Operator?

Kevin Clark -- President and Chief Executive Officer

Operator, if you are there, if you could please open the lines for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is coming from AJ Rice, Credit Suisse.

AJ Rice -- Credit Suisse -- Analyst

AJ Rice. Hi everybody. First, I was wondering on your nurse and allied business. When you describe those growth trends, is there a divergence between what you're seeing at the branch business level versus the travel level?

Kevin Clark -- President and Chief Executive Officer

Yeah. I mean, we are seeing kind of -- we're seeing all lines of business are up quarter over quarter, year over year. So we're seeing kind of a consistent increase in demand across travel nursing, allied health as well as our local per diem branches.

Bill Burns -- Chief Financial Officer

AJ, this is Bill. Just a modest difference. The travel nurse grew slightly faster, both in that mid-single digits, just north of the 5% to 6%. So travel nurse grew a little bit faster, about 8% and the rest of the business was kind of up in that 6%.

AJ Rice -- Credit Suisse -- Analyst

OK. I think in the prepared remarks, it was referenced a couple of times, the hospitals willing to look at modest increases to rates due to demand, and you're seeing modest increases in pricing. I guess, I would just quite ask, I know this has been a topic of discussion for a while now. Are hospitals seeing the tightening to the point where these increases are enough, do you think, to drive incremental supply into the market or is this still we're inching up, but we haven't yet sort of hit that trip wire, where we'll see a meaningful uptick in the number of nurses that put themselves up for these type of assignments?

Kevin Clark -- President and Chief Executive Officer

Yeah. It's a great question. We are seeing some higher bill rates, especially in our kind of premium specialties. But there is resistance on these health systems.

They are pushing back as much as they possibly can. If you look at the overall macro trends, admissions are up 3% nationally. Their revenues were up 6%. And it's certainly an area where we're partnering with our clients in terms of kind of walking them through the scarcity of supply.

And Buffy, you might want to add.

Buffy White -- President of Workforce Solutions and Services

Yeah absolutely. Thank you. So I definitely think the conversations are increasing as far as what the tightness in the supply is driving. We're having more conversations with healthcare facilities on what the market intelligence is telling us on where market rates are going.

I think we have made some strides, as you can hear on some bill rate increases. I think what that can do is potentially impact where nurses want to go versus the influx of nurses into the supply market. And also, we can maintain nurses within the profession who over time, we have seen some full fleet of progression or the profession into other industries.

AJ Rice -- Credit Suisse -- Analyst

OK. And maybe one last question. I know this is mostly just a lot of speculation at this point. But when we talk about the coronavirus and try to compare that to other examples of either really severe flu seasons or other unusual disease outbreaks, I do recall that there were times when the demand spikes very quickly for hospitals wanting to make sure they have adequate staffing and also, I mean, willing to pay a premium price.

But the one thing I didn't remember was, does it affect the supply in any significant way, the nurses seen the increased rates and step up and take the assignments or is there a fear from traveling in an environment where there's some uncertainty about what they're going to encounter? Just your perspective on that would be helpful.

Kevin Clark -- President and Chief Executive Officer

Yeah. No, I mean it's an outstanding question. I think the color there is if bill rates increase, we will definitely I think in our judgment, we'll see the supply enter the marketplace. Corona is a little different in that it's a fluid situation.

It's just impacting the United States. There is a lot of fear at the moment in terms of kind of population health. But I think we take the alteristic view of our healthcare professionals, nurses, doctors, allied health professionals join this profession to take care of sick people. And the professionals that work for us.

I mean, just in chatter among them, we think are here to serve. Buffy, I don't know if you want to add to that.

Buffy White -- President of Workforce Solutions and Services

Yeah. I would agree very fluid situation, but we're already in discussions with many healthcare facilities, looking at business continuity plans, rapid ramp plans to make sure that we can care for -- help them care for the patients. We are in discussions with them on rate considerations and what is going to drive supply in the areas most impacted by this, especially as their census potentially goes up or they are impacted by quarantine. So we are advising that there is going to be potentially some rate impacts which will allow us to drive supply to them.

We're spending a significant amount of time through our staff clinicians, especially our chief clinical officer, monitoring the situation, keeping everyone informed including our colleagues, our healthcare professionals, as well as our healthcare facilities. And continue to work through our plans so that we're ready no matter what comes of coronavirus.

AJ Rice -- Credit Suisse -- Analyst

Yeah. So that would be my last. Let me just -- you promised me on one other. Is the nurse that would get sent into an environment where there is an outbreak like what's happening in Washington State or something, are those just a standard registered nurse or do they have to have special training before you send them into that situation? Any thoughts on that?

Buffy White -- President of Workforce Solutions and Services

Yeah. At this point, it depends upon whether we're sending a nurse in to replace somebody who potentially has been impacted or where they're seeing their census going up. So the hospital facilities have not been able to define specifically the specialties that they are in need of. Potentially, you will see respiratory, potentially, you will see some of the ER.

But unfortunately, it's a little too early to tell.

AJ Rice -- Credit Suisse -- Analyst

OK. All right. Thanks a lot.

Kevin Clark -- President and Chief Executive Officer

Thank you.

Operator

Our next question is coming from Jason Plagman, Jefferies.

Jason Plagman -- Jefferies -- Analyst

Hey. Good afternoon. Just wanted to ask a follow-up on -- you mentioned a little bit of compression in bill pay spreads in the nurse and allied segment. Are you expecting that to persist throughout 2020 or are there signs of that bouncing back as you move through the year?

Kevin Clark -- President and Chief Executive Officer

Yeah. I mean, it's hard to say. So far, we see it just as I mentioned earlier, in terms of kind of premium rate increases around certain specialties. We'll see how coronavirus impacts bill rates.

Some of our -- in discussions with some of our customers in partnership with them, we're discussing crisis rates and what higher bill rates might need to look at to attract the supply that they'll need to kind of -- in terms of meet their impact.

Bill Burns -- Chief Financial Officer

And Jason, this is Bill. I'll just add that just to clarify the bill pay spread still expanded. A 2% increase on the bill rates and a 3% increase on the pay rate still means more gross profit. So we just had margin compression not gross profit compression as a result of that just to clarify.

Jason Plagman -- Jefferies -- Analyst

Got it. That makes sense. And as far as the percentage of premium rate assignments. I know you don't want to get into specifics.

But it sounds like that's been trending higher for the last couple of quarters. Any color you can provide on trajectory and kind of where we are relative to where that kind of peaked out a couple of years ago? That would be helpful.

Kevin Clark -- President and Chief Executive Officer

Yeah. I mean I'll let Bill answer that in a minute. But I would just say, look, overall, with for example our MSP spend under management rose about $50 million over the course of the year 18%. And our consolidated growth was up 7.1% year over year.

We had sequential growth. As Bill pointed out, the gross margin is basically flat other than this pay-to-build compression. But I wasn't here two years ago Bill, so if you could.

Bill Burns -- Chief Financial Officer

Yeah. As you know Jason we saw that trend declining. I would say that it's probably bottomed out and it's starting to move forward. But there's always a mix component.

So just as an example, if you compare our third quarter to our fourth quarter, our third quarter had some favorability from large EMR projects that garner a much higher bill rate that that tapered off. So despite that project type EMR business going away, in the fourth quarter, we still managed to grow year over year at a nice clip. So it's -- I guess, it will always bounce a little bit depending on what the mix of underlying business is.

Jason Plagman -- Jefferies -- Analyst

OK, that's helpful. And then last one from me. Just -- I appreciate the updates on your -- on the MSP business driving the capture rate higher. But can you just comment on what you're seeing as far as marketplace activity for health systems looking -- exploring MSP partnerships or moving in that direction? Are you seeing -- are those number of conversations in your pipeline for potential MSP contracts picking up or how is that trending?

Kevin Clark -- President and Chief Executive Officer

Yeah. I'll start that one, Jason. In terms of our pipeline, it's solid. It has definitely picked up from earlier last year.

And so we actually are pretty pleased with where our pipeline is. I mean, we finished the year on-boarding a number of new contracts, especially in the Northeast and Southeast. We had a number of large systems come aboard. And Buffy, I don't know if you want to add some color there.

Buffy White -- President of Workforce Solutions and Services

I do, yeah. So we're seeing some nice growth there. I'm also very encouraged by the pipeline. I think what we're hearing from clients, new clients looking in this area is you're looking at more of the programs moving from Gen 2, even Gen 3.

They are looking for more maturity in client delivery models, seeking enhanced services kind of across their continuum. There's also new stakeholders at the table during these elections of who will be their next provider beyond nursing, supply chain, HR, finance, etc. So we're really eager to offer the full suite of services, inclusive of people, process and technology, the total talent management moving forward.

Jason Plagman -- Jefferies -- Analyst

That makes sense. And that -- those discussions you're having with those clients are -- so it sounds like some of those are moving from a vendor-neutral situation. Or is it more switching MSP providers or is it people adopting a strategic partnership for the first time?

Buffy White -- President of Workforce Solutions and Services

I would say yes to all of those. So we're still seeing what I call Gen 1 which is the first to adopt for them of the MSP. Definitely, there's some vendor-neutral MSPs out there where the client is now looking at that staffing component being really a potential win for them, given the supply constraint. And then definitely, those looking at MSPs and what more can they get from a different provider.

Kevin Clark -- President and Chief Executive Officer

Yeah. And the MSP model is the dominant market model versus EMS. And as Buffy pointed out, our total talent management approach, our go-to-market strategy is really working, our ability to bring all of our services to customers lets us broaden the set of services that we provide.

Jason Plagman -- Jefferies -- Analyst

Great. Thanks.

Operator

Our next question is coming from Jeff Silber, BMO Capital Markets. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. I wanted to start focusing a little bit more long term. Kevin, I believe when you came on board, you talked about targeting. I think it was an 8% EBITDA margin target.

I mean, we're 1 year into it. You've made a lot of progress. Can you talk about what you need to get there? And maybe give us some sort of time frame when you think you'll get there? Thanks.

Kevin Clark -- President and Chief Executive Officer

Yeah. So what we called out, we implemented a strategic plan with the board and the management team in the second quarter last year, and we kind of walked through a scenario where we can get to high single digits by the end of 2021. And get to kind of that 7%, 8% by 2022 on kind of a run rate basis. And the way we get there is largely from the capital investment that we're making across our digital transformation and the tools that we are implementing, leveraging more automation and efficiency and driving greater employee productivity.

For example, our revenue-producing employees, recruiters, account managers, to the extent that we can see the average book of business, the number of healthcare professionals that they manage on a daily, weekly, monthly basis increase because they are using technology, lets them work in kind of an innovative, modern, real-time environment. We think we'll be well on our way to getting to those aspirational goals of high single-digits EBITDA margin over that time period. And obviously, we also, as we pointed out in the script, we took $15 million of cost out. We're investing in the front end of the business in terms of revenue-producing employees.

We reinvigorated the culture, the leadership, the management team here. We feel we're a whole new different business than we were 14 months ago when I came in. The management team has done a spectacular job getting momentum building and getting all lines of business turned around. One of the things we've also talked about that we are very excited about is our M&A process of looking at accretive tuck-in strategic opportunities in really principally four to five areas.

We'll continue to look at the adjacent lines of business that have higher growth rates and higher gross margins, such as allied health, Locums and our Education and our RPO business. And we'll also be looking at technology, technology businesses that complement the world that we're going into. If you look at the hospital marketplace, the trend is toward virtual healthcare. I read a report this week that talked about the last 10 years for hospital systems was focusing on readmission risk, the next 10 years is focused on preventing admissions and really focusing on how to treat patients and treat them right in their home.

And our ability to be innovative and invest in technology and deliver those type of services that can deliver our talent where they need to be I think will all factor into our ability to drive greater profitability.

Jeff Silber -- BMO Capital Markets -- Analyst

Great. You actually answered my second question before I had a chance to ask it about the acquisitions. But let me go focus back more near-term and start to go back to coronavirus, I've actually had some clients ask me this. Given the timing of this, and I know there's a lot that's still unknown, since it seems to be happening more in the spring time as opposed to the winter, do you think it might be a little bit easier to find nurses or to find healthcare professionals to handle this? Obviously, we don't know what the extremes are going to be.

But because of the timing, might hospitals be able to do this a little bit more on their own without using staffing firms?

Kevin Clark -- President and Chief Executive Officer

Yeah. I don't think so. I think we're actually more important than we've ever been to our clients. They need us, they need the investment that we are making in talent acquisition.

We have most latest strategies around things like programmatic advertising and other ways that we find talent online. And we're making investments that largely these health systems may not have a significant investment in. I think the average hospital system spends 1% in HR, and that's obviously a big part of what we provide. So I think that we're very much needed right now.

We have a lot of conversations going on. We've had a lot of this just in the last two weeks, our activity has picked up in terms of the dialogue among our -- especially our MSP partners.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Great. Thanks.

Operator

We have the next question coming from Tobey Sommer, Suntrust. Please go ahead.

Jasper Bibb -- SunTrust Robinson Humphrey -- Analyst

Hey good afternoon. This is Jasper Bibb on for Tobey. I wanted to ask about what your needs and what you're seeing in orders for the first quarter.

Kevin Clark -- President and Chief Executive Officer

As we mentioned earlier orders are up sequentially 17%, up 50% year over year. The time of year, we typically see a seasonal decline in overall orders, but orders are up double digits. So it's -- the backdrop continues to be very strong, Jasper, from, ex the coronavirus which is a new item for the whole world to deal with. The backdrop economically is very strong, the dynamics in our industry, all the segments that we are in are growing 3% to 5%.

It's an $18 billion industry that's expecting growth this year. So we like our position in the marketplace. We like the fact our theme this year is one vision, one brand, one Cross Country. The ability to bring all of our services to bear for our customers and helping them address their needs.

But within the travel nurse industry, there is definitely a seasonality as the sunbelt hospitals tend to hire up and put their orders in, in the fall. And then those travel nurses go to work especially in January and we see our orders decline. But proportionately year over year we're up.

Jasper Bibb -- SunTrust Robinson Humphrey -- Analyst

And then it looks like a good quarter for physician staffing. Could you touch on where you are in the turnaround for that business? And any additional investment or operational improvements you're anticipating there?

Kevin Clark -- President and Chief Executive Officer

Sure. I'll -- a few highlights and I'll turn it over to Steve. We're really, really proud of Cross Country Locums. We've rebranded our division, we turned the whole business around.

I got a lot of questions a year ago as, are we going to sell the business? Is it a core part of our portfolio? And emphatically, we said, yes, it is. It's very important to total talent management and our ability to bring all our services to bear. We continue to see strong demand across, not just the physician segment, but Advanced Practice. And I could call out a few areas like anesthesiology and hospital medicine.

But Steve, do you want to provide some more color?

Steve Saville -- Executive Vice President of Operations

Sure. Thanks Kevin. Hi Jasper. We exited 2019 obviously on a different trajectory than we entered 2019.

It's been a really good year. The turnaround as Kevin mentioned has been pretty measurable, the leadership at the -- within the office as well as the team's commitment to excellence has been outstanding, excellent execution. And so our revenue in the fourth quarter was very strong. As Bill reported earlier, it was up over 10%, almost 10% year-over-year gain.

While we had a nominal step back sequentially which is typical for the season, still above expectations. This team continues to execute exceptionally well, and we are moving into this quarter with continued high demand and continued execution across the business.

Jasper Bibb -- SunTrust Robinson Humphrey -- Analyst

Appreciate the detail. Thanks guys.

Operator

Our next question is from Kevin Steinke, Barrington Research. Please go ahead.

Kevin Steinke -- Barrington Research -- Analyst

Hey. Good afternoon everyone. I wanted to talk a little bit more about the capture rate. You mentioned that got up to 61% and added about $5 million in revenues.

And I think you linked that directly to your investment in revenue producers. So can you maybe just talk a little bit more about the dynamic and what you see the opportunity for increasing the capture rate is going forward?

Kevin Clark -- President and Chief Executive Officer

Yeah. I will start that and let Buffy also add. First and foremost, at Cross Country, we reorganized, restructured the business. And I'll say, in terms of capture rate, it was one of our key performance initiatives to improve our -- to improve it over the course of the year.

And I'd say one of the key kind of intangibles is focus. Management had a relentless focus on working with, in particular, our MSP clients and customers and ensuring that we are able to meet their delivery needs.

Buffy White -- President of Workforce Solutions and Services

Yeah. I'm very encouraged about our capture and our focus on our MSP customers. So growth is really coming from the rebounding volume within our existing customers as well as our new MSP wins that continue to ramp up. And really, this is part of our -- when we go into the turnaround, we focused on restructuring.

We did invest in new recruiter teams to complement our volumes. We restructured compensation plans so that we're driving the right behaviors, the right focus areas organizationally aligning people to making sure they are focused on those orders. But again, it comes back down to giving them the right visibility and being just laser-focused on those customers. And I -- that is really making a difference.

Kevin Steinke -- Barrington Research -- Analyst

OK, that sounds great. And then just on the gross margin guidance for the first quarter. I know you mentioned the typical annual payroll tax reset. But looking back historically, the sequential decline that you're guiding to is maybe a little larger than historically.

So are there any other factors we should be thinking about there?

Kevin Clark -- President and Chief Executive Officer

Yeah. Just as you start the year off, we are looking at other increases in some of the cost items that are in our numbers. Just things like health insurance, we've had some lumpiness with that throughout 2019 and in prior years. So we are looking at slightly higher run rate there.

But the majority -- the vast majority of the step back in margin is the payroll tax reset. It's about 75-basis-points step back just from that alone. And one other point, just the fourth quarter sequentially, as we called out also, did have some favorability from workers' comp. There was about $1 million in the quarter for workers' comp and health insurance off of the net benefit to the quarter.

So we're not...

Kevin Steinke -- Barrington Research -- Analyst

OK, right. OK.

Kevin Clark -- President and Chief Executive Officer

Yeah.

Kevin Steinke -- Barrington Research -- Analyst

Yeah, that makes sense. OK. Thank you. And then lastly I guess you mentioned your cross country marketplace initiative for the per diem market because it still sounds like early days there.

But maybe can you just talk a little bit more about how you envision that working and the opportunity that you see there?

Kevin Clark -- President and Chief Executive Officer

Sure. We're rolling out this new technology later this month across six regions to pilot the technology. And essentially, what this is, is an on-demand application that lets our healthcare professionals with the -- especially with a mobile device, look for and select in real-time open jobs based on the employers that we have partnered with in a local or regional marketplace. Today, 60% or so of our healthcare professionals are millennials, and the device of choice is a mobile device as opposed to -- and texting, I might add, versus even getting on the phone and talking to a recruiter today.

So we want to have a streamlined, easy candidate experience that lets them find their next job with the most efficient process possible, the fastest delivery of that job for their consideration. And on the client side, it's just important for the client. Our ability to expedite our talent to open jobs and fill needs faster is a big important part of the strategy. So we'll pilot this technology in the six regions, and then we will roll it out nationally over the next 12 to 18 months.

And longer term, we believe that the marketplace app will be something we'll deliver across all of our divisions.

Kevin Steinke -- Barrington Research -- Analyst

OK. That's helpful color. Thank you everyone.

Kevin Clark -- President and Chief Executive Officer

Thanks Kevin.

Steve Saville -- Executive Vice President of Operations

Thank you.

Operator

And the last question comes from Bill Sutherland, the Benchmark Company. Please go ahead.

Bill Sutherland -- Benchmark Company -- Analyst

Thanks. Hello everybody. Just a follow-up on the Cross Country Marketplace. So what -- as you think about what it can do as far as the percentage of jobs that it can take care -- the films that they can take care of? Any thoughts? Can it be something in the double digits?

Bill Burns -- Chief Financial Officer

Well, Bill, that's a great question. I look forward to answering it in future earnings calls. I will tell you, I will be happy to provide what we're seeing in terms of traction in the marketplace and our success and what the uptake is by our healthcare professionals. But we're very optimistic.

First of all, on-demand staffing software is a platform that's emerging in many segments throughout the staffing industry. In this particular segment, healthcare, we want to be the pioneer. We want to be the most innovative company. We think we are using the latest technology available.

But it's exciting for us to kind of bring to the market at Cross Country where I think the first time in probably 25 years or so, our own proprietary technology. So we're very proud of that.

Bill Sutherland -- Benchmark Company -- Analyst

And then when you look at what you are doing this year to drive revenue, will there be additional revenue producers as well as increased productivity or maybe you want to wait for two as far as what we should think about?

Kevin Clark -- President and Chief Executive Officer

Yeah. That's a great question. I'm hoping for both because what we plan on doing in terms of adding revenue producers this year is throughout the year to optimize the workforce that we have based on the demand we're seeing and the number of jobs that we are able to fill for our customers. So we, last year, had kind of a catch-up year, where we rightsized the recruitment staff by increasing the number of recruiters and account managers and salespeople.

Now it's more about just optimizing that workforce. And then we firmly believe that the technology investment that we're making which is considerable, as we mentioned earlier, will lead to employee productivity gains, and we'll see the book of business with our revenue producers increase due to the automation and efficiency of the tools.

Bill Sutherland -- Benchmark Company -- Analyst

But the tools probably won't really start to impact until next year do you think?

Kevin Clark -- President and Chief Executive Officer

I think that's a fair summation. We rolled out our applicant tracking software system to one of our divisions in November. It went very smoothly. From that, we're able to have lessons learned in terms of onboarding the balance of our organization in mid-2020.

But I think it's fair to assume that the productivity gains would be very late this year and into next year.

Bill Sutherland -- Benchmark Company -- Analyst

And I guess this is for Bill. Are there additional plans this year as far as expense reductions? And then what would you -- and if so, where would you direct it?

Bill Burns -- Chief Financial Officer

Absolutely. Our job is never done in that regard. We're not at the margins we want to be at and we recognize that there's still some efficiencies to be had. If you recall last quarter, we talked a little bit about, as an example, Prudential and just being one of our focus areas within the nurse and allied business.

We've got multiple teams, we're aligning those on common processes and looking at new technologies there as well to automate and help streamline that and make it as efficient as possible. But that's certainly not the end-all be-all. We're going to continue to look at all overhead and all corporate functions to continue to try to drive as much out of the cost out.

Bill Sutherland -- Benchmark Company -- Analyst

OK. So you're not -- there's not like a targeted number that...

Bill Burns -- Chief Financial Officer

No. We haven't called out a specific target for this year. I can just say it is a priority for us, we're going to continue -- I would expect that we'll continue to see restructuring charges as we move throughout 2020 as we continue to identify new opportunities. But we haven't sized a new plan as we did last year.

If you recall last year, we continued to upsize that plan all throughout the year. And ultimately, closed the year with realizing $15 million in annualized savings.

Bill Sutherland -- Benchmark Company -- Analyst

And I believe -- and I just want to make sure I was clear, because in your prepared remarks Bill you said $13 million of that was reinvested?

Bill Burns -- Chief Financial Officer

That's correct. The realized number in -- remember, we invested ahead of the savings. So we got the savings, we overdrove on that, but we ultimately realized $2 million last year.

Bill Sutherland -- Benchmark Company -- Analyst

OK. And then last for me. Just commentary on the fill rates for both businesses, kind of I guess I'm mostly interested directionally if it's -- I know you're doing a lot to improve it at a company level, but just wondering about the demands of the marketplace and how it's trending?

Kevin Clark -- President and Chief Executive Officer

Yeah. I mean, look, fill rate is important to us. It's a challenge. There is a scarcity of supply of healthcare professionals.

So we're deploying all of our innovation and strategy and brain power to be the most agile in terms of reaching healthcare professionals where they are in the cycle. But with an increasing demand, I think we're optimistic that fill rates will continue to improve over the course of the year. And that will attract a bigger supply but it's a challenge for us.

Buffy White -- President of Workforce Solutions and Services

Yeah. I would agree. I think it's very much about candidate engagement, how quickly we can get them through the cycle, is it a nurturing cycle, is that attractive for them. On the other side, we are relentless in having discussions with healthcare facilities around making fast decisions, making an easy onboarding process and allowing us to get the supply there fast.

The shelf life obviously is very short. So we believe we have to work both sides in order to get that fill rate up.

Bill Sutherland -- Benchmark Company -- Analyst

OK. That makes a lot of sense. Thanks everybody.

Kevin Clark -- President and Chief Executive Officer

Thank you.

Steve Saville -- Executive Vice President of Operations

Thanks Bill.

Operator

This concludes the question-and-answer session.

Kevin Clark -- President and Chief Executive Officer

Well I just want to thank everybody for taking the time tonight with Cross Country healthcare. We appreciate your confidence in the team, and we look forward to informing you of our success throughout 2020.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Bill Burns -- Chief Financial Officer

Kevin Clark -- President and Chief Executive Officer

AJ Rice -- Credit Suisse -- Analyst

Buffy White -- President of Workforce Solutions and Services

Jason Plagman -- Jefferies -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Jasper Bibb -- SunTrust Robinson Humphrey -- Analyst

Steve Saville -- Executive Vice President of Operations

Kevin Steinke -- Barrington Research -- Analyst

Bill Sutherland -- Benchmark Company -- Analyst

More CCRN analysis

All earnings call transcripts